Cuban tax: Government prioritises tackling evasion over growth

Cuban tax evasion

8th August 2017

Cuba’s seven year push to bolster self-employment hasn’t exactly been smooth-sailing. Ever since Raul Castro announced that the formerly communist country was breaking away from its roots and scaling back central involvement in its economy, there have been numerous issues, not least with tax evasion. The government is now recognising the issue as so severe that it is pausing growth plans in order to get the nation’s tax base in order. But what will this mean for Cuba and its potentially capitalist future?

Scaled back government investment

Back in 2010, Raul Castro – brother of Fidel – announced that the government would scale back its involvement in the nation’s economy and encourage more Cubans to launch their own businesses and hire workers. This was obviously not going to be the easiest of tasks. Cuba has been rooted in communism for decades and, as a result, its citizens have been highly reliant on government investment. Mr Castro’s aim was to create nearly one million roles for government workers who were laid off at the time and, in order to encourage growth and private sector investment, governing bodies readily granted business licenses to firms of all shapes and sizes. However, that’s no longer the case.

Cuban tax woes

The reason for this sudden halt in the issuing of business licenses is related to tax. In the past seven years the Cuban government has struggled to retain control over its tax affairs which has impacted the country’s ability to grow its economy as huge amounts are being lost. In March this year alone, 223 people were arrested for tax offences. To make matters even more concerning, Cuba really isn’t a place you want to be even accused of evasion. Not only are suspects made to pay the lost sum back in full – often with additional fees on top – but it also doesn’t always prevent them from a potential three to eight year jail sentence.

The new ruling affects a wide range of business types from bed and breakfasts to restaurants, construction firms, schools and much more. In addition, Cuba will no longer be issuing licenses for wholesale and retail sellers of agricultural goods, vendors of CDs or DVDs and operators of recreation equipment.

The move has not been well received in Cuba, with many suggesting that it highlights beliefs in some elements of the ruling party that free market reforms have been pushed too far and that they’re contributing to rising inequality. The average monthly wage in Cuba is $30, which is the same amount a bed and breakfast owner can charge for a single nights’ stay.

More than anything, the move highlights the Cuban government’s focus on tackling its tax woes. Almost every country on earth is now recognising that huge amounts of lost revenue can be regained by clamping down on evasion, and Cuba appears to be no different.

It’s highly unlikely that many firms will have experience of Cuban tax, or placing specialists here, however the tide appears to be changing and the once strictly communist nation could be about to open its doors in the near future and embrace the concept of globalisation. It’s critically important for agencies that could potentially do business in the country to be prepared for this stage. The Cuban government is exceptionally harsh on those found guilty of evasion and with the prospect of both a fine and a lengthy prison sentence for even relatively innocuous cases, it’s not a nation to be messed with.


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